DOW JONES NEWSWIRES
Ambac Financial Group Inc.'s (ABKFQ) third-quarter earnings
plunged, going up against billions in unrealized gains from insured
credit derivatives in the prior year.
The results come a day after the bond insurer filed for Chapter
11 bankruptcy protection. An inquiry by Internal Revenue Service
over the company's accounting for $700 million in tax refunds
raised executives' worries that Ambac's chances of successfully
reorganizing would vanish if it had to repay the funds.
Earlier Tuesday, Ambac said it struck a deal with the IRS, that
would have the agency the company before taking any actions
involving the tax refunds.
The company has been struggling for some time. Ambac's insurance
of mortgage-backed securities, which soured with the housing
market, battered the company alongside much of the bond-insurance
industry. Ambac had already been warning investors about the
possibility of a bankruptcy filing, though it tried unsuccessfully
to negotiate a prepackaged bankruptcy plan with a group of its
senior debtholders. The company has indicated the creditors are
still open to further negotiations.
In the latest quarter, Ambac posted a profit of $76 million, or
25 cents a share, from a year-earlier profit of $2.19 billion, or
$7.58 a share. The latest results included has a net $9.4 million
gain stemming from changes in derivatives' value, while the prior
year had a net $2.13 billion gain from the same.
Earned net premiums dropped 40% to $143.1 million, while net
investment income slumped 49% to $69.8 million.
But loss and loss expenses plunged 64% to $165.4 million.
Both Ambac and its larger rival MBIA Inc. (MBI) have struggled
for new business since their credit quality lost top-rated status
in 2008.
Earlier Tuesday, MBIA reported its third-quarter loss narrowed
as its reductions on the fair value of insured credit derivatives
slimmed from last year.
-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291;
joan.solsman@dowjones.com